ACCA FM · Chapter 11 · Question 3 of 11
A company's dividend per share was $0.30 four years ago and is $0.42 this year. What is the historical average annual dividend growth rate (to 2 decimal places)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) 8.78%
Explanation
There are four years of growth between the two dividends. g = (0.42 / 0.30)^(1/4) - 1 = 1.4^(0.25) - 1 = 8.78%. Dividing the total growth of 40% by four (10.00%) ignores compounding, and using a cube root counts only three years of growth.
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